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Priceline Keeps Growing, but Guidance Again Disappoints

Investors reacted negatively again to the travel giant's typical strategy of topping prior forecasts and then seeking to control future expectations.

Some companies develop a pattern in how they communicate their financial results to investors. Online travel specialist Priceline Group(NASDAQ:PCLN) takes a predictable tack toward reporting its financial picture, and quarter after quarter, short-term-minded traders overreact to what they see as disappointing numbers. Yet over time, the company has become a giant in the industry, responding well to threats from different corners of the market and still maintaining strong long-term growth trends.

Coming into Tuesday's second-quarter financial report, Priceline investors wanted to see the sharp gains in revenue and earnings that they're used to having the company deliver. Priceline largely met or exceeded those expectations, but the guidance that it issued for the current quarter was less than most had hoped. Let's take a closer look at Priceline Group and at what long-term investors should take from the report.

Image source: Priceline Group.

Priceline keeps soaring

Priceline's second-quarter results were quite strong. Revenue jumped 18% to $3.02 billion, accelerating from last quarter's relatively top-line slow growth and topping the consensus forecast by about $30 million. Adjusted net income climbed by a fifth from year-ago levels to $758 million, and that produced adjusted earnings of $15.14 per share. The bottom-line result compared well to investor expectations of just $14.20 per share.

Looking more closely at the results, Priceline kept seeing solid performance from its fundamental measures of success. Gross travel bookings were up by a sixth to $20.8 billion, even though adverse foreign currency impacts cost the company around three percentage points of additional growth. Gross profit once again came almost entirely from international operations, which saw its contribution to the figure rise by nearly a quarter.

One source of concern was Priceline's segment figures. Hotel growth slowed, with room nights booked climbing at just a 21% pace, to 170.2 million, and falling sequentially from the first quarter of 2017. Rental-car days rose just 12% to 20.7 million, while airline tickets had their worst performance in two years, with a nearly 9% decline from the year-ago period to just 1.8 million. Still, Priceline's revenue sources were relatively balanced, with agency revenues climbing at a 17% pace while merchant bookings picked up 14%.

CEO Glenn Fogel was terse in comments in the press release. "The Priceline Group achieved strong results for the second quarter," he said, pointing to global growth in the accommodations segment as positive for the future of Priceline's expansion.

What's next for Priceline?

Priceline thinks that the future is bright. In Fogel's words: "We are pleased with the performance of the business and will continue to build our franchise by adding properties to the platform and by investing in technology, customer experience, and content expansion."

What many investors found troubling, though, was the guidance Priceline gave for the third quarter. The online travel specialist said that gross bookings could rise just 9% to 14% in constant currency terms, with only 11% to 16% growth in hotel room nights booked. Guidance for adjusted net income of $32.40 to $34.10 per share was below the current expectation for $34.20 per share among those following the stock. Given how important the summer season is for Priceline, any shortfall from expectations could have particularly strong implications for the online travel specialist's future -- if you believe that the company's projections are actually trustworthy and not biased toward the low side.

Priceline investors reacted negatively to the news, and the stock dropped 6% in after-hours trading following the announcement. But for long-term investors who are used to seeing these volatile moves following earnings results, Priceline still seems to be healthy, and is finding ways to keep growing despite its ever-increasing size and command of the online travel market.

Author

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.
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